Each year, millions of Social Security recipients eagerly await news of a cost-of-living increase, or COLA. The COLA has been around for decades, and its purpose is to help seniors on Social Security retain their buying power in the face of inflation.

But there's no set amount for what that COLA looks like -- it's based on yearly data from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). And this year, the CPI-W didn't see a huge uptick in the cost of common goods and services, which means seniors on Social Security are only getting a modest raise for 2020.

Specifically, that raise will amount to 1.6%, which is only slightly more than half of 2019's 2.8% COLA. Of course, 1.6% is better than nothing: In the past decade, there were three years in which seniors got no COLA at all. In fact, 1.6% is actually in line with the raises seniors saw going into 2012, 2013, and 2014.

Senior man with serious expression sitting outdoors


Still, 1.6% is hardly a raise worth celebrating, especially in light of last year's more generous boost. Furthermore, since the average Social Security beneficiary only collects $1,471 per month, a 1.6% raise translates into an extra $23.50 a month, or $282 per year. Again, it's better than nothing, but it's hardly a life-changing sum.

Why such a low COLA?

The past decade has seen comparatively low COLAs, especially when we hark back to the 1970s when they were first introduced. Between 1975 and 1984, yearly COLAs ranged from 3.5% to a whopping 14.3%. From the mid-1980s through mid-1990s, they averaged around 3.5%. So what gives?

The core of the problem lies in using the CPI-W as the benchmark for calculating COLAs. That's because the costs reflected in the CPI-W don't accurately mimic seniors' greatest expenses. For example, fuel costs are a big driver of the CPI-W, but that's a relatively minor expense for seniors who don't drive to and from work every day.

Other categories covered by the CPI-W include food and beverages, housing, apparel, and recreation -- expenses seniors bear, but not on the same level as younger consumers. A more accurate measure of rising senior expenses would be one that hones in on healthcare -- but as of now, the CPI-W is what seniors are stuck with.

Medicare can eat away at COLAs, too

There's yet another problem with the meager raise seniors are looking at for 2020: They may not get it all. That's because many seniors pay their Medicare Part B premiums directly out of their benefits, and since the latest Medicare Trustees' report estimates that Part B premiums will increase by about $8.80 a month in 2020, that would leave the average senior with a mere $14.70 after all is said and done. Plus, an official Medicare announcement hasn't been made yet, and if Part B premiums land slightly higher, seniors will see even less of that COLA.

What can seniors do?

Seniors on Social Security can't change what their COLAs look like, and for those on Medicare, Part B premium increases are out of their hands. But for beneficiaries who are struggling, cutting back on expenses and supplementing their incomes with part-time work are two effective strategies in the face of a measly raise.

The gig economy makes it especially feasible for seniors to generate income without having to subject themselves to the rigors of a traditional job. People who are disappointed with 2020's COLA can see about monetizing hobbies or finding creative ways to boost their earnings.